Mutual funds have this odd old habit of pushing investors to invest in equities. Sure we are a country with poor equity penetration and must be encouraged. However most of the CXOs of the MF industry keep forgetting that the last link is always weak. In any sales the last link is not so well trained as the Managing director or the CIO is. So the cxo does not really know how the sale happens. It is surely not as responsibly as some CEOs want it to be.

I do meet some very responsible sounding CEOs, but we all know that apart from asset managers, they are asset gatherers too. So it is really tough for them to implement some of the suggestions that they have in their head, but why not make a start?

Suggestions for CXOs (regulator does not read my blog…)

1. Collect a Risk profile – and incentivize the IFA for filling up the form and getting the client to sign it.
2. Ask the client why he is investing, what time frame, and how will he decide on whether the fund is doing well.
3. Do this exercise with say 1000 IFAs who are willing to do this for some or many of their clients
4. Match this with the reality of what the client is doing. I mean map ‘saying’ and ‘doing’.
5. Communicate better with the participating clients and IFA about equity performance and risk
6. Also talk about risk of NOT INVESTING in equities
7. Talk and teach standard deviation to the IFA – many of them do not know it. Believe me.
8. Teach math of ‘date selection’ risk. For e.g. currently all funds look great. ‘End date selection risk’.
9. Offer customised solution to clients (through IFA) for their select 10 clients.
10. Create the solution and let IFA interact with the client – let him quote the source or keep it a secret.
11. Recognize responsible equity sellers vs Aum gatherers

My grief: You will ignore it now. In 2022 when the market goes from 44000 to 32000, SEBI will force this on you. You will comply.

What I would like to see….

• Equity with 5 year lock in
• Equity plans with no dividend option, only growth (3 CIOs have said they would like this!)
• Zero up front commission and a rising trail till year 5. Then constant.
• Target date funds with 5 year blocks..starting with 2045 block
• Structured Retirement product where client chooses how much in Equity and how much in Debt

Before you do all this if you keep rewarding equity gatherers why will the sales force ever sell responsibly? Only if responsible selling is even recognized can a company decide to reward responsible selling. Currently IFA who sell responsibly are penalized by almost all schemes. Funnily there is no reward for an IFA to keep money in ELSS beyond 3rd year. So a kid is told…do a SIP in ELSS for 3 years….and after one year let us keep withdrawing Rs. 150,000 every year – or as much is needed for 80C. Sounds stupid? You love this, presumably.

Forget how you structure a reward – see how it is used. That is more important. Create a point system for rewards..with Bentley or a Ferrari at the top..and see how many sales people pass the marshmallow test !!